Interferon alpha (IFNa) induces assembly of the multicomponent transcription complex ISGF3 which binds to interferon stimulated response elements (ISREs) present in the promoters of all IFNa activated transcription units, and thereby induces expression of IFN early response genes. ISGF3 is formed by the association of a set of polypeptides (ISGF3a peptides) that are tyrosine phosphorylated in response to IFNa with a DNA binding subunit called ISGF3g. ISGF3g is related to the tumor suppressor protein IRF1 and the oncoprotein IRF2. IFNa stimulated gene expression and the formation of ISGF3 can be inhibited by either phorbol ester or the expression of the adenovirus E1A protein. To investigate whether cell transformation might effect interferon signaling in a manner analogous to E1A we investigated IFN signaling and ISGF3 formation in series of carcinoma cell lines and found that despite normal activation of the ISGF3a proteins, ISGF3 formation was defective. In several cell lines derived from malignant tumors of the lung, colon, ovary, and hematopoeitic organs a novel inhibitor activity, termed TKO, correlated with non-responsiveness. TKO interacted with the ISGF3g protein component of ISGF3 such that it can not complex with ISGF3a, thus preventing formation of the complete ISGF3 complex. TKO can disrupt pre-formed ISGF3 in vitro, and prevents ISGF3g, IRF1, and IRF2 from interacting with the ISRE. Highly purified TKO can directly interact with ISGF3g in the absence of DNA. Factors which disrupt formation of the ISGF3 transcription complex may be involved with both cellular transformation and the inability of interferon to exert its antiproliferative and antiviral effects. When analyzed by two-dimensional gel electrophoresis, highly purified TKO preparations contain six candidate spots in the region known to contain activity. One of these spots is superoxide dismutase (SOD) as identified by both internal protein microsequencing and western blot analysis using an anti-SOD antibody.